Eversource Energy (ES) Q2 2012 Earnings Report, Transcript and Summary

Welcome to the Northeast Utilities Q2 earnings call. My name is Sandra, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Jeffrey Kotkin. Mr. Kotkin, you may begin.

Thank you very much. Good morning, and thank you for joining us. I'm Jeff Kotkin, NU's Vice President for Investor Relations. Speaking today will be Jim Judge, NU Executive Vice President and Chief Financial Officer; and Lee Olivier, NU Executive Vice President and Chief Operating Officer. Also joining us today are Jay Buth, our Controller; Phil Lembo, our Treasurer; and John Moreira, Director of Corporate Financial Forecasting and Investor Relations. Before we begin, I'd like to remind you that some of the statements made during this investor call may be forward-looking as defined within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risk and uncertainty, which may cause the actual results to differ materially from forecast and projections. Some of these factors are set forth in the news release issued yesterday. If you have not yet seen that news release, it is posted on our website at www.nu.com. Additional information about the various factors that may cause actual results to differ can be found in our annual report on Form 10-K for the year ended December 31, 2011, and our 10-Q for the quarter ended March 31, 2012. Additionally, our explanation of how and why we use certain non-GAAP measures is contained within our news release and in our most recent 10-K and 10-Q. Now, I will turn over the call to Jim.

Thank you, Jeff. There are several items I'll cover before turning the call over to Lee for his report on operations. First, I want to say that we're very pleased with the results for the first quarter as a merged company. We achieved the financial results we have targeted, experienced very strong operational results, made significant progress on our capital projects and made a strong start in integrating the 2 companies and achieving the synergies that we've discussed with you. For the first time, NU's financial results include NSTAR's results of operations. As you can see from the earnings news release we issued yesterday, we are providing results in some granularity. We also want to ensure that we provide enough detail so that you can identify our onetime merger-related costs in the quarter, including $46 million of customer rate credits, as well as identifying our earnings on a recurring basis. We hope you find this clear and helpful. In addition to financial results, I will also cover key legislative and regulatory issues, including the recent draft decision from the Public Utilities Regulatory Authority regarding our storm restoration efforts in Connecticut last year. The third area I will cover is the progress we have made in the financing arena with regards to new credit facilities and related commercial paper programs that were put in place just last week. Lastly, I will briefly discuss the on-going integration process that is well underway as we move forward in creating a high-performing customer-responsive and efficient organization. Let me start with a brief discussion of our second quarter results. Excluding merger-related costs, we earned $0.45 per share this year compared to $0.44 last year. There were several items that contributed to this $0.01 change, which equates to about a 2.3% earnings increase. First, the addition of NSTAR to NU's reported results had a very positive impact as NSTAR Electric's distribution and transmission operations contributed approximately $0.19 to the quarter's results. However, the impact of these earnings was exactly offset by the higher level of shares outstanding, which increased to 314 million shares from NU's 177 million shares last year as a result of the merger. Second, transmission earnings from CL&P, public service in New Hampshire and Western Mass together increased the quarter's results by about $0.05 per share and reflect our continued investment in transmission infrastructure. That increase occurred primarily in Western Mass where earnings more than doubled this quarter as a result of the pace of investment in the Greater Springfield Project. NU parent and other company earnings also had a positive impact on the quarter, contributing about $0.03 per share versus 2011. Reflecting NSTAR communications earnings, as well as lower interest expense at the parent. Factors that had a negative impact on the quarter included an increase in O&M costs, which reduced earnings by approximately $0.02 per share. That decline was due primarily to higher nontracked pension and health care costs. An increase in other operating costs, primarily related to higher depreciation and amortization and higher property taxes, reduced earnings by another $0.03 per share. A decline in Electric sales reduced earnings by $0.01 per share and can be largely attributable to successful implementation of various energy efficiency programs. And lastly, higher interest expense cost us another $0.01 per share. These results were very much in line with our internal expectations and spot on with Wall Street's estimate for the quarter. While we do not plan to provide specific guidance for the second half of this year, we are comfortable with consensus earnings forecast for us for the second half of 2012. However, we believe that the split between quarters, which averages $0.56 per quarter -- excuse me, $0.56 per share in the third quarter and $0.70 per share in the fourth quarter does not take into consideration NSTAR's historic quarterly earnings patent, during which the third quarter typically accounted for 35% to 40% of the company's annual earnings. So going forward, Northeast Utilities postmerger earnings would be more weighted towards the third quarter than the fourth. As we've said in the past, we view 2012 as a transition year. From an earnings perspective, it's a year when earnings -- NSTAR earnings are only included in the NU consolidated results for 3 quarters of the year. We will have recorded nearly all the costs related to the merger and related regulatory settlements. However, the benefits of the merger on recurring earnings will only be modestly apparent as we are early on in our integration. Earnings drivers for the second half of the year include continued investment in our transmission business; a $7 million distribution rate increase for Yankee Gas that became effective July 1 of this year; a distribution rate increase of public service in New Hampshire, also effective July 1, that includes $7 million for the recovery of infrastructure cost; continued higher pension and postretirement benefit costs at Connecticut Light and Power, Public Service New Hampshire distribution and Yankee Gas. Weather impacts, additional tree trimming, emergency preparedness and borrowing costs at Connecticut Light and Power that resulted from the 2011 storms and subsequent commitments that we made. You can see the impact of these higher costs on Connecticut Light and Power's year-to-date distribution results, and they're largely in line with our expectations. Also, another earnings driver for the second half of the year will include synergy savings from the merger. Before moving on to a discussion of the economy, I'd like to mention a couple of positive rate developments for customers of Public Service in New Hampshire, NSTAR Electric and Western Mass. Effective July 1 of this year, the energy service rate for customers of Public Service of New Hampshire declined 18%, while the basic service rates for customers of NSTAR Electric and Western Mass declined 16% and 4% respectively. A good example of how low natural gas prices are benefiting our customers. At the halfway point of 2012, I would still characterize the economy in the states we serve as improving and better than the rest of the country. Unemployment rates compare favorably to last year. The New Hampshire rate is down to 5% compared to 5.5% at this time last year. The Massachusetts rate is now at 6% compared to 7.4% last year. And Connecticut's unemployment rate is 8.1% versus 8.9% last year, all of which is still below the national average of 8.2%. Initial and continued unemployment claims continue to decline in all 3 states. Also, housing permits are up significantly in each of the 3 states, most notably in Connecticut. In the legislative and regulatory front there were several items pending. First, on June 4, the Massachusetts' Supreme Judicial Court ordered the Massachusetts' Department of Public Utilities to vacate its earlier order that prohibited NSTAR Electric from fully recovering bad debt expense associated with basic service. We view this as a positive development and await future action from the DPU on the issue. This development did not have an impact on our second quarter results because it is a tentative decision and there is more process involved before the ultimate outcome is determined by the DPU. The second item is one that you're all familiar with, it involves a complaint filed by a number of parties about the current base return on equities earned by New England transmission owners. That complaint was filed with FERC. 3 months ago, the FERC issued an order establishing hearing and settlement procedures for the complaint. A settlement conference between the parties is scheduled for tomorrow. I cannot predict whether the case will be settled or not, but we do feel comfortable with our position that the current base ROE of 11.14% is reasonable. if the case does not settle, we believe that FERC's litigation and decision process will take more than a year. More recently, a draft order was issued on July 17 by the Connecticut PURA that addressed the response to the 2011 storms by all companies under its jurisdiction including, Connecticut Light and Power. The draft decision had a number of positive comments about CL&P's performance but concluded the company was deficient in several areas. The PURA suggested that Connecticut Light and Power's ROE could be reduced in our late 2014 rate case, if it did not implement significant improvements, many of which are now underway. We submitted written exceptions and also participated in all arguments last week regarding the decision and a final order is expected to be issued tomorrow. In those exceptions, we noted that the power restoration was completed safely and consistent with industry norms and that we're making good progress in improving our emergency preparedness and response efforts. This docket is not the investigation into the recoverability of CL&P's deferred storm costs, which currently total approximately $285 million. We still need to file for recovery of these costs, but you may recall that under the merger settlement agreement, we will begin that recovery on December 1, 2014. Additionally, we have agreed as part of our merger settlement, not to recover $40 million of those costs and that $40 million was among the charges in the second quarter. Also as part of the merger settlement agreement, CL&P agreed to initiate a $300 million distribution resiliency program. We filed that program with PURA earlier this month and Lee will provide you with some additional details in a moment. Perhaps lost in all the attention around last year's storms is the very solid customer service and reliability performance we have been providing for our customers this year, despite some extremely hot temperatures in July. Our electric system has held up very well as we will attest to later. Now, I'd like to discuss some very positive recent developments around financing activity. We were successful in executing 2 new credit agreements that total $1.6 billion. These 5-year revolving credit agreements will serve as backup to commercial paper programs at Northeast Utilities and NSTAR Electric. Together with Connecticut Light and Power's existing $300 million facility, we now have access to $1.9 billion of liquidity for financing the capital requirements of our much larger company. We expect that expanding NSTAR's commercial paper program to the NU family of companies will lower interest costs by about $10 million annually going forward. We continue to make good progress with our integration efforts and remain optimistic that we will be able to achieve and exceed the synergy targets that were provided in regulatory filings. We expect that our integration plans will be essentially completed by late summer and the results of this process will be discussed with our board in early September and direction will be provided to you as part of the Analyst Day that we have planned for Boston on October 5. So mark your calendars, more specific details on this event will be made available to you very soon. Now, I'll turn the call over to Lee for an update on our operations.

Okay. Thanks, Jim. I'll start by reviewing our transmission investment initiatives beginning with our NEEWS project. We made significant progress on the Greater Springfield Reliability Project in the second quarter, and the project was 75% complete at the end of June, compared with 63% complete at the end of March. The project will provide an important new 40-mile pathway to move power reliably from Western Massachusetts to Connecticut. We continue to expect the project to be complete by late 2013 at a cost of $718 million. Of that sum, nearly $500 million was invested as of June of this year. Turning to the Interstate Reliability Project CL&P filed this application with the Connecticut Siting Council in December and commenced evidentiary hearings in June. Earlier this month, we and ISO New England filed testimony in Connecticut attesting to the need of the project. Our partner in the project, National Grid, filed the citing application in Massachusetts in June and in Rhode Island in July. With these filings, all major permit and siting processes are now underway. We expect to receive final state approvals for the project by the end of 2013, which would support construction in 2014 and 2015. We continue to forecast CL&P share to be $218 million. The third major element of NEEWS is the Central Connecticut Reliability Project. ISO New England previously announced that it would review the CCRP project, along with the other Central Connecticut projects as part of a study known as the Greater Hartford Central Connecticut or GHCC study. There's some new developments on this project. We expect that ISO New England will issue preliminary needs results at its August planning and advisory committee meeting, which we expect will show many reliability problems across the state of Connecticut. In addition, we expect ISO New England to identify and publish transmission solutions for these problems in 2013. While the final solutions are not yet known, the widespread concerns across Connecticut identified as part of the GHCC study may require several 115 kV line and related substation upgrades across Connecticut rather than the original Central Connecticut 345 kV line project. Although the precise scope and cost of these are still being evaluated, we expect there to be a sizable group of projects that come out of the GHCC study. Turning to NSTAR Electric, the most significant project in 2012 is a new 18-mile, 345 kV line to be built to Cape Cod. We received Massachusetts Energy Facilities Siting Board approval and expect to have our Army Corps of Engineers permit shortly. We expect to begin the construction of $110 million project later this quarter and expect to complete it by middle of next year. Including the $207 million NSTAR Electric expects to invest this year, we have raised our projected transmission capital expenditures by $44 million to $718 million in 2012, which includes investments NSTAR Electric made this year prior to the merger. Turning to our Northern Pass project, a $1.1 billion, 180-mile primarily high voltage DC line to move 1,200 megawatts of clean power out of Québec and into southern New Hampshire, we continue to make progress. You may recall that a 140 miles of the project would be built along existing right-of-ways. The other 40 miles in Northern New Hampshire is where we need to secure a new right-of-way. We've made additional progress since our last quarterly earnings call and expect to purchase the remaining segments and finalize the route in the third quarter. There will be an extensive outreach in New Hampshire in the communities to the regulatory review in project development process. We want them to be partners in this process which will bring very significant economic and other benefits to New Hampshire. And we want to be sure we fully benefit from the community input. As we begin the community outreach process, the new route will be filed with the U.S. Department of Energy in the fourth quarter of this year, that should support the start of construction in the second half of 2014 and completion by the end of 2016. However, should the process of securing the property continue beyond the end of this quarter, the project completion would move to early 2017. Turning from transmission to generation. On June 21, Public Service of New Hampshire placed into service the final major component of our Clean Air Project, the secondary wastewater treatment system. All of the major equipment is operating well and we are very pleased as we continue to see mercury and sulfur emissions well below target levels and well beyond the state's 2013 mercury emission requirements. As expected, New Hampshire regulators have set a schedule to review the prudence of our expenditures on the project. And we expect a decision in early next year. As I've noted earlier, the project costs are coming in at $422 million, about $35 million below budget. And we believe we are well-positioned for the New Hampshire Public Utility Commission to review. In mid-April, the Public Utility Commission granted PSNH temporary rates to reflect in our energy service charge about 2/3 of all of the operating and capital costs of the project. The other third is being deferred and we expect recovery of those to be addressed in the PUC decision next year. Turning from generation to electric distribution, our reliability was strong in all 3 states in the first half of 2012, due to continued investment and ongoing preventative maintenance. Across all 4 electric companies, our overall reliability for the first 6 months of 2012 was 20% better than it was in 2011. Earlier, Jim mentioned the draft audit from PURA concerning the performance of Connecticut's utilities during the 2 storms of last year. We continue to make a significant number of steps to improve performance across the company in emergency preparedness. We want to move the company's performance to the very best top-tier performance of utilities in the U.S. CL&P has already significantly expanded its tree trimming and removal program, and has implemented a number of organizational changes. This week, we are participating in a 2-day emergency drill organized by the Connecticut Division of Emergency Management and Homeland Security, which followed an internal emergency drill that CL&P undertook earlier this month. You may recall that one of the key aspects of our merger settlement agreement in Connecticut, which Jim touched on earlier, was a commitment to invest $300 million to improve the resiliency of CL&P's overhead electric distribution system. On July 9, CL&P filed a plan to invest $300 million over a 5-year period from 2013 through 2017. Of that sum, we expect about $258 million would be related to new capital investment, and $42 million would be related to incremental expense. The majority of those expenditures would be spent on both routine and enhanced tree trimming. Most of the remaining dollars would be invested in structural and electrical hardening [ph] of our system. As part of this upgrade, CL&P will move from trimming trees along its overheard wires from once every 5 years to once every 4 years. We will also enhance our program to remove trees and major limbs that are weak, diseased or leaning into our wires. We estimate that circuits that benefit from this enhanced tree trimming will experience a 35% reduction in outages during major storms and a 50% reduction in outages during more routine conditions. After the 5-year program is complete, we project an improvement in the reliability of approximately 15% across the entire CL&P system. Consistent with the merger settlement, we have scheduled the proposed spending so that we would need to recover no more than $25 million from customers during CL&P's fixed rate period, which runs through November of 2014. Also consistent with the settlement agreement, we are requesting the recovery of the program, including our capital costs, which will earn at CL&P's most recent authorized return on equity of 9.4% through a tracking mechanism. This spending would be incremental to CL&P's existing distribution capital investment program, which reflected in today's distribution rates. Our Electric distribution companies, CL&P, NSTAR, PSNH and Western Mass Electric invested a combined $357 million of distribution capital in the first half of 2012, including NSTAR Electric's first quarter capital expenditures of $56 million. We currently project an electric distribution capital expenditures for NU's 4 electric distribution utilities of $667 million for the full year 2012. Overall, we expect to invest a total of approximately $1.7 billion in our infrastructure in 2012, including NSTAR's first quarter capital expenditures. In addition to the $718 million of transmission, and the $667 million in electric distribution, we expect to invest $173 million in natural gas distribution and $53 million in generation. Our corporate services companies are projected to invest another $100 million, primarily in information technology, which is included in the $1.7 billion number. Turning to our Natural Gas distribution business, we continue to see significant opportunities ahead. In the first half of this year, NSTAR Gas and Yankee Gas together completed the conversion of approximately 2,350 homes from oil to gas space heating. By the end of the year, we expect that number to grow to approximately 6,500. That would be a record level. This is primarily driven by the very large price advantage natural gas continues to have over heating oil in New England. We expect interest to continue to rise within our natural gas service territory and we look forward to serving a growing number of gas heating customers. Additionally, we continue to add new natural gas customers, both residential -- through residential and commercial construction. We added more than 1,400 new customers in the first 6 months of the year due to new construction and expect that number to grow to 3,000 by the end of the year. So that would be additive to the 6,500 conversions that we expect to complete this year. So now, I'd like to turn the call over to Jeff.

Thank you very much, Lee, and I will turn the call back to Sandra just to remind you how to put in questions this morning.

[Operator Instructions] Mr. Kotkin, back to you.

Thank you very much. First question this morning is from Kit Konolige from BGC Financial.

Jim, can you review once more your comments on, I believe you said you were comfortable with consensus for the remainder of the year, but $0.56 and then $0.70, but with -- so we should understand that to be for the second half, you're comfortable with the total of that, which then presumably we would add to the -- what you've reported year-to-date and arrive at a 2012 kind of consensus comfort number?

Yes, Kit, could I -- I got a couple of messages there, I guess, I think you have it essentially right. We wanted to make sure that the quarters were adjusted to reflect what we think to be the flow. So instead of the third quarter being smaller than the fourth quarter, it's very likely that the opposite is going to be true. The second point I'd make is when you add those 2 quarters to what we've already earned, I think that gives you a number somewhere around $2.24. I think we'll do modestly better than that. So we're comfortable with those 2 quarters and expect to do a little bit better. But again, the key message was to sequence the quarters correctly.

And then could -- if NSTAR had been included from the beginning of the year, can you give us a sense of what the pro forma adjustment would be?

I don't have that pro forma number with me.

Next question is from Travis Miller from Morningstar.

The one on the synergies, now that you guys have been together, what are you seeing in the low-hanging fruit synergies, perhaps, [indiscernible] as to date? And then have you found any kind of upside that might flow to shareholders instead of the rate payers?

Sure. The second part of that question, an easier answer in that we essentially have multiyear rate settlements in all of our jurisdictions. So to the extent that we achieved synergies over the next 3 years, all of it flows to the shareholders' benefit. I think we remain very encouraged and optimistic at the potential in terms of cost reductions. And if I was to comment on one area in particular that's been a pleasant surprise, I have to say it's in the financing area. We have -- in my comments, I mentioned that we expect $10 million of short-term interest savings as a result of implementing the commercial paper program that we did last week. We also anticipate some refinancing opportunities as well, in today's low interest rate environments that are going to help our financials as well. So I'd say no negative surprises. There's a lot of potential. We continue to think the net benefit analysis that we filed in both Connecticut and Massachusetts is conservative, as we characterized it when we filed it. So a lot of potential in terms of this combination going forward, and I think as we've indicated, you can expect to see good things in terms of financial results going forward.

Okay. What's your timing on those refis?

It's currently under review right now.

NSTAR Electric has their refinancing in October, Travis. That's the biggest $400 million item that's out there for this year.

Next question is from Paul Patterson from Glenrock.

A few quick ones. Northern Pass, how much have you guys invested, year-to-date, in this? Or not year-to-date and I guess, I think you guys are planning on investing $675 million for the year. Is that still on track? And just how much should we think that you guys have put into this so far?

No, Paul, this is Lee Olivier. As of June 30, we've invested $52 million in the project. By the end of the year, we'll invest about $72 million into the project. So that, I think, the number you're probably thinking about is probably the GSRP number or the overall transmission number. As I've said earlier, we'll invest about $718 million of transmission. We should put almost $470 million of transmission capital in service this year in 2012.

Okay. And then has there -- I mean, I wasn't really clear whether there was a change in timing here, could you just elaborate again on that? I'm sorry, I was listening but I wasn't -- I didn't really pick it up.

Yes, the plan has been that we would have all of the right-of-way that we needed to acquire from the landowners who would have that complete by the end of the third quarter. And what we would do then is, we would do an extended outreach in other communities, announce the route to outreach into the communities and then file with the Department of Energy -- the U.S. Department of Energy to request the environmental assessment. And my comments are to the extent that, that would go over the third quarter, in other words we wouldn't acquire all of the land, then the project could move into early 2017. So it's really contingent on do we get the required right-of-ways purchased by the end of the third quarter.

And how do you think that's going?

It's going quite well. We're down to a relatively few properties, but each one is owned by a unique person who was a unique interest around the property and unique needs and obviously, as you move forward through that process, the marketplace changes as people become more aware of things, shall we say. But we think it's going very, very positively.

Okay. And then the Connecticut -- the Central Connecticut expansion, has that been delayed or is that just off the table now? How should we think of that?

Well, the Central Connecticut -- the project that we had before which was this Central Connecticut Reliability or CCRP project was essentially a 345 kV line, which would connect at the end of the Greater Springfield Reliability Project and then connect down into southwestern Connecticut on the previous major 345 kV lines that we built 4 to 5 years ago to reinforce Southwest Connecticut. During our studies, and ISO New England studies, they have revealed other NERC reliability issues that go beyond the scope of the original project. And we have also completed other projects that would affect the overall modeling of Connecticut. So the scope is expanded. The way to look at this thing, the scope has expanded and through all of Central Connecticut to the north, where it borders into Massachusetts and to the south, where it goes to the shoreline and to the Northwest of Connecticut. So the 2 areas that are really excluded from the study or have any real needs are Southwest Connecticut which we've solved and Eastern Connecticut. So what we're looking at, instead of building that 345 kV line down through an existing right-of-way that we had owned, it's probably going to be more upgrades of 115 kV lines which already exist on right-of-ways, which makes it significantly easier to site. And also more upgrades inside of existing substations adding additional transformation equipment, which again is inside the fence which would make that project or series of projects, easier to get through the siting process. So that's kind of where we are with that project. So the project is actually firming up, but it's not the project that we envisioned 4 years ago as a single 345 kV line.

Okay. And then just finally the sales growth. You have -- Northeast Utilities over many years now weather-normalized, has been declining in sales growth. And I noticed with NSTAR -- I mean, I don't know, I think of you guys as more or less sort of -- being a little bit more erratic, or I don't know if erratic's the right word, but not a clear decline over the years. And it looks like this quarter and last quarter, it was declining. So I'm just sort of wondering what the outlook is with DSM and you mentioned that I think your conservation efforts and efficiency efforts. What do you guys see in New England in terms of long-term demand growth? Could you just elaborate a little bit? I mean, just give us a little of your crystal ball kind of thing here, what we should be thinking about?

Yes, I really can't, sort of, speak for the whole region, Paul. And from a financial perspective, I do want to point out that to the extent that the weakening in sales is due to energy efficiency, it's worth noting that that's not necessarily a bottom line impact at NSTAR Electric, we get recovery of lost space revenues associated with energy efficiency. We also get incentives for that spending. And in addition to that, Western Mass, to the extent the sales declined there, that gets chewed [ph] up in decoupling process. So obviously, we're seeing relatively flat sales this year to the extent we're down a little. I do think it's the impact of energy efficiency.

Okay. But do you think this might have any impact on Hydro-Québec's interest in Northern Pass? Has there any -- I'm just sort of thinking, in general, sort of how that might be thought about?

This is Lee. No, actually it doesn't. The Hydro-Québec is looking at what's going to take place in the regional capacity markets. And there's a recent study that came out, a draft study from ISO New England actually, yesterday I believe. That looks at the issues of the liability in New England the grant as it relates to the fact that so much of the generation capacity is on natural gas and what that study's going to lead to is a requirement of diversity of fuel supply. So if more of the new generation comes on as natural gas, they will have to have redundant fuel supplies, could be oil, could be an LNG facility, could be dedicated or firm pipeline capacities. So the likelihood that you're going to see a number of things happen. You're going to see more existing capacity retire, 8,000 to 9,000 megawatts. You're going to see new capacity come on. [indiscernible] Entry cost that would be above where HQ would come into the market. So if you look at demand on gas, you could proffer that gas prices will go back up, capacity will retire, capacity cost will go up, all of which makes for a good marketplace for Northern Pass and New England.

Next question is from Caroline Bone from Deutsche Bank.

I was just curious. Are you reflecting the positive impact on the SEC order in Massachusetts in your comments about second half consensus?

No, we're not. We should have $28 million that was recognized in the first quarter of 2012 and until we get a final decision out of the DPU, we will not be booking that. So that would be in addition to the guidance that I've talked about.

Okay, great. And then just a quick question on Northern Pass. Does Hydro-Québec have all the necessary right-of-way lined up on the other side of the border, i.e. how flexible is their route if you can't cross the border where you initially expected to?

Caroline, this is Lee. In all of our communication with Hydro-Québec executive management, they are confident that they can acquire -- they have many existing right-of-ways on their side of the border to begin with, and they're confident they can acquire the necessary right-of-ways to connect into our system in the general area that we have designated for the connection.

Okay. And then just maybe one last question. I guess, I understand that the decline in sales at Yankee Gas this quarter was due to some special contracts that rolling off, what sort of EPS impact did you see from the loss of those contracts in the quarter?

Insignificant, Caroline.

Our next question is from Michael Lapides from Goldman Sachs.

Two questions. One on the rate increases you touched on, 7 million I think at PSNH, 7 million at Yankee Gas, both effective, I think, around July 1. I don't know if you gave a number on the Merrimack, the temporary rate increase and also can you refresh just on the timing of when that went into effect?

Mike, you're talking about the April decision from the NHPC that allowed us to reflect 2/3 of the operating in capital cost?

Yes, please.

Okay. All right. Well, just in terms of when that went into effect, that went into effect in the energy service rate in approximately midyear the July time frame.

Okay. Can you quantify -- just refresh on how much that was?

In terms of the dollar value?

Yes, sir. Yes.

I actually can't. It's 2/3 of our needed revenue requirements associative [ph]. I don't actually have the dollar value.

Michael, we'll get back to you on that later on the call.

Okay. And on the Central Connecticut Reliability Project and, kind of, moving the difference from doing 1 345 kV line to potentially doing multiple 115 kV lines along with a few substations, just for simplicity's sake, does this make the project in terms of capital cost a bigger project, a smaller product versus what was originally discussed? And when you think about the time line, does it accelerate or decelerate the potential time line in the project?

In terms of the actual cost of the series of projects and at some point, we'll kind of change how we characterize these projects as we get further out and see some of the proposed ISO New England solutions. We think the cost is approximately the same, could be a little bit more, could be a little bit less. But at this point in time, it's a little bit too early to tell. We think they could finish up in and around the same time as the original, kind of, single-line CCRP project, which was going to finish around the end of 2016. So around the end of 2016, beginning of 2017, that time line should hang in there based upon everything we know now, Michael.

Next question is from Maurice May from Wellington Shields. Maurice E. May - Wellington Shields & Co., LLC, Research Division: First question is for Jim. In the last conference call, you mentioned some positive drivers for 2013 earnings, and I was wondering if you could just review those once again.

I think we're looking towards the Analyst Day in October to provide guidance for '13 and beyond. So I prefer to wait until then to provide any specifics. Obviously, Tom May will be there leading the Analyst Day discussion. And we look forward to providing a lot insight then. Maurice E. May - Wellington Shields & Co., LLC, Research Division: Okay. So we will get 2013 guidance at the Analyst Day?

Yes. Maurice E. May - Wellington Shields & Co., LLC, Research Division: Okay. And my second question has to do, and you might want to say this is a good Analyst Day question as well. But the dividends, obviously, Northeast Utilities shareholders got 2 boosts this year, but NSTAR shareholders got 1. And I'm just wondering, going forward, what would be the timing and perhaps magnitude of the next dividends boost. NSTAR was on a slightly earlier schedule. You used to announce your dividends, I guess, new dividends in December for the first quarter whereas Northeast traditionally has been a little bit later. Can you give us any color on that?

Maurice, I think you're -- so, at one point, NU's dividend increases were effective in the third quarter. And then we changed that to align essentially with the NSTAR schedules so we were both raising dividends in the first quarter for a few years prior to the merger. Are you talking about the declaration or the actual payment? Maurice E. May - Wellington Shields & Co., LLC, Research Division: Yes, more of the declaration, when we might get the indication of the new dividend.

Fourth quarter, and as you mentioned, NU did get -- NU legacy shareholder did get 2 increases this year, but it was obviously to sync up with the dividend level that NSTAR was paying. The increase that NSTAR shareholders did receive this year was above average, so we continue to outperform the group. And I anticipate in the future that dividends will grow in line with their earnings and we expect to outperform the industry in terms of earnings growth as well. So we are committed to the dividend and we'll continue to be.

The next question is from Steve Fleishman from Banc of America Merrill Lynch.

Just a couple of clarifications. First, on the fact that Yankee Gas sales were down weather-normalized, is that just more of the kind of one contract issue? When -- the amount of conversions you mentioned, is that pretty much you thought you'd be at the beginning of the year? Or are you kind of ahead or behind plan?

Are you talking about the weather-adjusted sales or the actual?

Correct. Weather-adjusted being down, given all the conversions going on.

Weather adjusted sales year-to-date, and if you look at those, they're up about 5.8% year-to-date.

I guess the quarter might have been down. So maybe it's just...

The quarter was down, but year-to-date, we're up about 5.8% as of the first 6 months. One of the things you're looking at is it's sort of with and without special contracts, and those can vary. Those are very large contracts for very large customers, and the timing of that can affect -- and that's the driver in terms of what caused the weather-adjusted sales to be down for Yankee for the quarter. It's just a matter of really a relatively small number of special contracts.

And would you say the conversions are, kind of, on what you thought and planned for the beginning of the year or ahead of plan?

Steve, I would say we're ahead of plan. And as Jimmy indicated to you particularly in Connecticut, we're starting to see a lot of new construction starts, homes, condos, small businesses and in and around with this gas obviously they're going directly to gas. So we're ahead of where we thought we would be for this year. And quite frankly, somewhat struggling to keep up with the demand and request from customers to connect them.

I think earlier, we had talked about potentially 5,000 conversions and now we're saying, by the end of the year, we expect 2,500 -- 6,500 which is -- will be a record level for us.

On top of 3,000 new dwellings.

And I know the, I believe, the Connecticut DEEP was supposed to come out with a, kind of energy strategy sometime later this year. Could you maybe give us any flavor of what you expect to see in there and particularly related to these -- supporting the gas conversions?

In regards to their strategy, Steve, I mean it's heavily focused in and around energy efficiency, making sure that energy efficiency is maximized in Connecticut, but it would have -- so there's probably going to ask for some additional spending. It would also look at treatment in and around whether, you want to call it the decoupling or lost space revenue kinds of approaches. For gas, it clearly sees the state in all of the economics of DEEP, there's been a number of independent studies that have looked at the state which has this many billions of dollars to be saved that could boost the economic development of Connecticut. So we expected to see a strong endorsement of greater gas conversions in the state over the course of the next 10 years. So looking at a 10-year horizon.

Okay. One last question on the Connecticut -- Central Connecticut project and what that ever turns into. Would those-- if it does turn into these different structure, would those be part of NEEWS or they would be essentially separate projects?

At this point in time, we view those as part of the NEEWS family of projects. We have to wait and see exactly how they turn up in terms of their connectivity. But right now, we view those as part of NEEWS and as part of the 12.89% return on equity.

The next question, we have Paul Patterson again.

Just to follow up on NSTAR. It wasn't clear to me reading the release, how NSTAR sort of on a standalone basis or I guess, just on a comparison basis quarter-over-quarter, the second quarter actually performed from a net income perspective? Could you give us a little bit of flavor on that?

Sure. I think the second quarter last year was about $60 million of net income and I think this year, we're about $57 million of net income.

Okay. And is that because -- and whether it was better this year than last year, is that right?

Well, we had sales declines in the quarter both electric and gas. And obviously, depreciation in property taxes as you invest capital, put pressure on earnings as well. So I think it's just a combination of somewhat higher normal expenses and sales that were weaker than a year ago.

Okay. And so the trend going forward, is that just sort of a transition period? Or should we sort of think about a different run rate for the company?

I wouldn't bank on -- in terms of trending, the second quarter has historically been the weakest by far for NSTAR. The third quarter 30%, 35%, 38%, 40% of our earnings tend to be in the third quarter. So I don't know what you'd trend off the second quarter that would be meaningful for the third and fourth quarter this year.

Okay. Fair enough. You also mentioned that your guidance was sort of intact for the rest of the year. Is that ex weather or is that with the benefit of weather that we've seen so far in the third quarter?

That doesn't reflect any update for the hot July that we've had.

Next question is from Andrew Weisel from Macquarie.

Just quickly, you ran through a whole bunch of numbers for transmission spending this year and I, unfortunately, didn't catch all of them. Can you just run through those numbers again as far as what to expect by sub?

I don't think we did it necessarily by sub...

We didn't do it by sub, but we said it's about $718 million of transmission CapEx this year. We're going to put in service, we'll plant in service about almost $470 million of plant in service this year. If you looked at NSTAR transmission, it would be approximately about $206 million this year. And I'm not sure if I have the breakdown. So the old and new transmission, it's going to be over $500 million and then you got the $206 million, so it rounds out to about $718 million. And the majority of the transmission spend this year in the old and new legacy is going to be at Western Mass Electric associated with GSRP. And what I did indicate is that as of June 30 of this year, we've invested about $500 million of investment in the Greater Springfield Reliability Project.

Great. That's very helpful. And then just the changes relative to this thing, though, I know you're not giving explicit 4-year spending guidance yet, but should I think of the changes relative to prior guidance as being a timing issue or a different magnitude? In other words, should I pull -- or should I adjust these changes in my expectations for next year? Or is this more of an update to the total spend?

I think this is fairly standard, which you could expect. And I mean if the old legacy plan that we provided at EEI for NU is about $2.8 billion of transmission. Obviously, we will have the added NSTAR transmission numbers in there when we present those to you in October. So you could see a more robust transmission capital spend. There's a whole series of projects that we have not discussed with you at this time, that are resulting out of the various work that ISO New England is doing and in and around the Greater Boston area to get power in from Northern Boston, Western Boston and of course, the Southeast Massachusetts project that we're already working on now. So there is more needs based upon NERC requirements and other issues that we will be addressing and talking about more in the fall.

I think we just want to update some information that Michael Lapides asked about earlier.

Yes. Michael asked talked about the impacts of the scrubber investment actually -- effective April 16, it was put into rates 2/3 of the full recovery, it was put into rates on a temporary basis. That results in about $11 million of earnings impact in 2012. If you annualize that for a full year, it's above, probably closer to $18 million a year. So I think that provides insight into what Michael is asking about.

All right. Our next question is from Jonathan Reeder from Wells Fargo.

If you could discuss a little bit on the Northern Pass, assuming you get the land acquisitions settled later this year, how do you see the North -- sorry, the New Hampshire siting process playing out? Do you expect it to be a contentious process? The timeframe you gave as far as construction seems to be relatively smooth?

Well, when you don't have to use eminent domain, then obviously that makes it considerably easier. Because we will, again, we have the lower 140 right-of-way that exist. We would purchase this new 40. So we think that aspect of it would be actually much easier. I think the bigger issue is that what we have to do for the New Hampshire is demonstrate the value. We have to demonstrate what's in it for New Hampshire. We think, as I've indicated in my remarks, that there is hundreds of millions of dollars of value in New Hampshire as a result of the fact that where this line interconnects in Southern New Hampshire it's going to lower locational marginal prices, so they can see lower prices right out of the marketplace in New Hampshire. There is, over the life of the projects, a significant amount of tax revenue associated with it. There is some economic development we have put together, proposed economic development should the project go through. So what we have to do is make our clear case. And of course, the fact of the matter is, when that 1,200 megawatts shows up, that will displace other less efficient -- not just clean generation capacity, so it has a huge environmental benefit to the region, has a huge reduction in terms of CO2 to the region as well. So it's really win-win-win, we believe for all of the parties and all of the stakeholders.

One more question -- Michael Lapides, we have another question from you.

Jim, you referenced some of the interest savings or the refinancing savings. You talked about $10 million so far. Can you talk about some of the maturities you see coming up in the next 6 to 12 months and how much in the way of interest savings you expect to reap from those?

Sure. The $10 million that I mentioned was on the short-term side, having to do with the commercial paper. I think Phil mentioned earlier the most obvious refinancing that's on the calendar is in October we have $400 million coming due. It's got a coupon of 4.875%. Obviously, if were to refinance it out, rolling it over, we're looking at rates that are in the low 3s in all likelihood. So there's some immediate savings that we can anticipate beginning in October.

Okay. And one last thing. When we think about the October Analyst Day, is your goal to provide investors not just the look into 2013, but a look into both longer-term, earnings growth and a longer-term dividend growth assuming they move in lockstep together. Will that include or exclude -- will you run, kind of, scenarios around Northern Pass simply because it's a little bit on the -- there's a little bit of TBD left or a little bit of work left to do in terms of the permitting process from Northern Pass on both sides of the border?

I think we're expecting to give guidance to the '13. And I think, actually, in the last earnings call we talked about a 3-year focus in terms of 2013, '14, '15, which is a period of time where we certainly have full control over our own destiny, given the rate settlements that are in place. So that being the case, if the long-term growth is pegged off over that 3-year period, but it's still not a -- Northern Pass wouldn't necessarily be a huge catalyst in there. But that's the game plan right now, Michael, to talk about '13 and then a 3-year number.

That wraps it up for questions for us for today. If you have any more questions, please call us this afternoon. And thank you for joining us this morning.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.